Many people look forward to their holidays as the year ends and leave all the work. Then there are people like us who care about their hard-earned money and want to establish a solid financial plan before the year. Whether you are an entrepreneur or a salaried person, making wise decisions with financials will help you live a successful and sound lifestyle.
What is Need for a Financial Plan Checklist?
As with other important to-do lists, a financial planning checklist will help you to remember the critical financial information of your own life which needs to be monitored.
You may not implement all items on the checklist, but at least it will help to know that you have checked off every important item and have had a close look at it.
Every year, we vow to start things more organized manner by being one step ahead of everything. Read below to find out how to annually create a financial planning checklist.
Need for an Annual Financial Plan
An annual financial plan is a helpful procedure that lets people review and evaluate their overall performance for 365 days. It helps determine:
- Where you over and underspent money
- Current income versus expenses
- Savings added or withdrawn in the entire year
- Payment of bills and how they were paid
- Increase or decrease in current income/profits
- Effect of inflation and deflation on the plan
- Any potential add-ons
These are just a few things you can cover by reviewing your financial management plan. Since it is a customized process for different users, you can include or remove items as per convenience.
Overall, an annual plan helps you track progress and determine long-term personal and business management goals.
Things to Include in a Checklist for Financial Planning
Below are the most essential pointers to include in your financial planning checklist.
Have a Review of Your Financial Status
This is why we discuss the importance of maintaining a regulated financial status. At the end of the year, list the assets you own, like current cash in the bank, undeposited checks, property, money people owe you, and other things like vehicles. Put your belongings out for a price to know your net worth. The assets you own show your financial strength.
Now let’s talk about the thing we all want to get rid of: liabilities. A liability is something you owe an individual or a company. For instance, mortgage payments, a quick loan to finance business, and car leases are common everyday examples.
The third thing to overview is your everyday expenses throughout the year. Determine whether your current income is sufficient to repay monthly liabilities and meet daily expenses without burden.
Jot Down the Major Life Changes
It may seem a bit odd, but you need to think about the fundamental changes, mainly finance related, that happened in your life over the past year. Did you get a promotion? Are you happy with the business changes?
Is there anything significant that happened in the family and affected the financial position? Are you looking to change jobs? Get married? Pregnant? Send your kids to school?
The list just keeps going on…
You need to list the past-year events that affected your finances and the potential occasions that might disturb or lead to a change in the setup. This list will keep the head running about your next plan.
For instance, you are planning a wedding in June. Plan your expenses and savings so that the wedding preparations do not burden your budget. Similarly, consider the emergency funds you maintained for emergencies and any unexpected mishap.
Update the Savings
A lot of people experience a change in their income throughout the year. This genuinely has an impact on your savings account. Whether you are saving for college funds or retirement, putting the right amount in the bank gives an overview of how much you can save.
While at it, do not forget to consult a tax expert to understand the due tax on these long-term savings plans. The tax charges will also be affected if you plan to increase or decrease monthly savings. Ensure you are on the same page with your bank to avoid any last-moment shockers.
Deeply Review Investment Portfolio
This one is for our entrepreneurs. While checking your savings and income accounts, we recommend having a formal and detailed review of the investment portfolio. Some non-experts may confuse it and limit it to assets like stocks and bonds. However, if we dig deeper, an investment portfolio contains details about every other asset invested in the past year.
As a business owner, a wise strategy is to make separate investment portfolios for your personal and the assets used under the business. This clarifies and makes it easier to pay your annual tax dues.
Also, consider whether changing the components in this list can change the tax dues. Different strategies like tax-loss harvesting help users manage their taxes much better after selling assets.
Review the Insurance Coverage and Discuss Changes
While reviewing financial plans, it is mandatory to go through the insurance plans and coverages. You must ensure that the current plans are up-to-date with your requirements. People purchase the most critical insurance for their vehicle, homes, and health. Apart from this, if you wish to book a plan for unwanted emergencies and hazards, make sure that it conveniently fits the current income: and expense status.
Users who have lost or gained family members in the past year must consider changing their insurance plan. Make sure that it is not just ideal for your current inflows but does not go to waste.
Set Your Financial Goals
Once you have a complete picture of where you are financially, it’s time to set some goals. You don’t want to make things too easy though. Set yourself up for success, but also realistic expectations.
For example, if you are trying to save $1,500 for a down payment, you probably shouldn’t aim to do it in one month. Instead, look at how much money you could put away each week or month.
Your short-term goals should be focused on getting closer to your financial goal. They should be something that you can accomplish within the next 30 days. Short-term goals aren’t about making big changes; they are about small steps toward what you want to achieve.
If you want to pay off debt, start saving more money. If you want to build an emergency fund, start putting aside 10% of every paycheck.
Mid-term goals fall somewhere in the middle of short-term and long-term goals. These are the goals that take longer to reach, but you won’t feel like you are missing out on anything while you work towards them. Mid-terms goals should be about building momentum. They should help you gain confidence and experience along the way.
Long-term goals fall outside of the realm of short-term and mid-term goals. Long-term goals tend to be very broad, such as saving enough money to retire early.
However, there is no reason why you can’t break down those goals further. Maybe you want to save $10,000 per year for retirement. Or maybe you just want to learn how to invest properly. Whatever your long-term goals are, make sure you write them down and keep track of your progress.
Update Plan for Financial Emergency
A lot of people are finding themselves suddenly out of work or facing major personal challenges like a medical bill, car repair or rent payment. Now is the time to make sure you have enough money saved up to cover those unexpected costs.
If you don’t have a good emergency fund set aside, now is the time to start putting money away. Experts say that having three to six months’ of living expenses stashed away is ideal.
And while you’re at it, take a look at your overall emergency plan as a whole and think about how much you’d need to survive without access to credit cards, loans or friends and family.
Critically Review Your Savings Plans for Retirement Life
A good place to start is to review what you already have set up. You might find it helpful to do one of the following:
• Check out how much money you are contributing annually to each of your retirement accounts
• Consider rolling over any old 401(K) accounts from a previous job into a current IRA
• Review your options for setting up a Self-Employed Individual Retirement Account (SEP IRA). If you don’t know where to begin, talk to a professional advisor about the pros and cons of different types of IRAs.
Keep Your Family in Focus
If you’re newlyweds, it might seem like everything is just starting out. But one thing you should do now is start planning ahead for your family’s finances. There are many reasons why you may want to consider having a discussion about money with your partner. Here are three ways to think about doing so:
1. Planning Ahead For Your Future College Expenses
The cost of education continues to rise, especially for students attending four-year colleges and universities. Saving up enough money to pay for tuition can be difficult, especially when you factor in student loan debt.
However, saving for college is important because it allows you to plan ahead for what you will need to cover once you graduate. You don’t want to find yourself in over your head financially.
2. Buying Life Insurance For Yourself And Your Spouse
Life insurance is something that most people take for granted. But even though we often assume our parents have bought us coverage, it’s never too early to begin thinking about purchasing life insurance for yourself and/or your spouse.
As a matter of fact, buying life insurance is one of the best investments you can make. Not only does it provide security for your loved ones, but it also provides a return on investment.
3. Determining How Much Money To Save For Future Medical Needs
Medical costs continue to increase every year. While medical advances help keep prices down, they aren’t always covered by health insurance plans. This leaves many families struggling to meet rising healthcare costs.
One way to protect against potential future medical bills is to set aside money into an individual retirement account (IRA). An IRA is a tax-advantaged investment vehicle that lets you contribute pre-tax dollars to invest for your future.
By contributing to an IRA, you can reduce your taxable income while still building wealth. Plus, IRAs offer tax benefits such as tax-deferred growth and tax-free withdrawals.
There are certain additional items on your financial planning checklist that you and your spouse must think about together. You both need to consider what you want out of retirement and whether you’ll need help during retirement. Here are some things that you and your partner should talk about:
• What type of lifestyle do you want to live now and later?
• How much money will you need to retire comfortably?
• Do you want to travel extensively when you retire? Or, do you prefer staying close to home?
• Are you willing to work longer than expected? And, if so, how long?
• Will you need assistance from family members when you reach age 65?
• What types of health care coverage do you want?
Bottom Line
Before paying your annual taxes, it is essential to dive into the financial plan to sort and understand your current position. Since it can be pretty confusing for newbies, we create a step-by-step checklist for a financial position that helps you cover all the topics in detail.
From making a comparison list to including insurances and reviewing portfolios, there are multiple things that people need to cover. Just remember to maintain regularity for convenience and change the plan if it affects your family members of momentous life events.
Keep your business lists separate from personal accounts, as it is a reasonable step to avoid any tax-related inconveniences. This checklist can either regulate the process or help you start a healthy routine of maintaining well-balanced financial life.
Users who feel confused can seek the services of a financial planner to get a kick start or regularly maintain their annual financial checklist.
